Constitution Minute

The ongoing tussle* at the Consumer Financial Protection Bureau is still in court. It’s a contest between two statutes—Dodd-Frank and the federal Vacancies Reform Act—but the CFPB itself raises larger constitutional questions relating to the separation of powers.

Article I vests all legislative power in Congress. Congress is not supposed to delegate that power but, of course, it has on multiple occasions in creating regulatory agencies. The New Deal changed everything in this regard. The nondelegation doctrine remains good law on paper, but no agency has been struck down since the Supreme Court caved in to the New Deal, and no agency regulation has been invalidated as an unconstitutional delegation of power since 1935.

The result is we now have federal agencies that combine the Article I, II, and III legislative, executive, and judicial powers in a single entity. Agencies make rules, enforce the rules, and, through administrative law judges (ALJs), act as judge and jury with regard to violations of the rules. James Madison wrote in Federalist No. 47:

The accumulation of all powers, legislative, executive, and judiciary, in the same hands … may justly be pronounced the very definition of tyranny.

Because we departed from the Founders’ design, we are faced with the problem of trying to put some law, some structure, around entities that were never contemplated in the Constitution in the first place.

In October 2016, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit found the CFPB unconstitutional because, in the panel’s view, it places too much authority in the hands of a single, unaccountable director. The executive branch usually has the power to control subordinate officers at federal agencies, but an exception was created in 1935 for what are called independent agencies under the New Deal. The FCC, SEC, and FTC are examples of independent agencies. The CFPB is an independent agency under Dodd-Frank. A President cannot fire the directors of independent agencies except for cause.

The three-judge panel called independent agencies a ‘headless fourth branch of government’ with enormous unchecked power. One problem with unchecked power is that the CFPB (like the Obama Justice Department) plays the sue & settle game. It shakes down financial companies for money and gives the money to left-wing advocacy groups like Planned Parenthood and the National Organization for Women. They turn around and funnel some of it to the Democratic Party. The whole thing is corrupt.

One standard check on power is to have a body of commissioners like at the FCC—multiple directors, in other words. But the CFPB has only a single director. It’s the first time an independent agency has been headed by a single person. To rein things back in, the three-judge panel struck down that part of the CFPB statute saying a President could only fire the CFPB director for cause. So as it stands at this moment, a President can now fire the CFPB director at will—that is, for a good reason, a bad reason, or no reason at all—and the President may supervise the director’s activities.

U.S. Supreme Court building (FxFC Photo)

The CFPB case was reheard by the full D.C. Circuit Court of Appeals in May 2017.** There is no ruling yet, but you can bet this case is headed to the Supreme Court whichever way the Court of Appeals rules.

To recap: first, Congress was not supposed to delegate its power to agencies, but it did. Then came the administrative state and alphabet-soup independent agencies with multiple commissioners in the New Deal. Now we have the CFPB with enormous power in the hands of a single director who attempted to name his own successor under Dodd-Frank. Where are we going with this?

We’re a long way from clear-cut separation of powers. And we could drift further still. There’s nothing magic about the multiple commissioner / single director distinction the three-judge panel drew. There are no objective standards in the Constitution or elsewhere as to what is adequate separation of powers and what is not. The Supreme Court could say, when it comes to the CFPB’s single director, no problem, keep right on going, the outer limits of permissible mingling of powers have not been reached. Who knows where this will end.

What would Ben Franklin say? He would probably say, ‘this is what you get for setting up unconstitutional agencies in the first place.’

How powerful are we going to let the administrative state get? President Trump is trying to get things back under control with his moves to cut regulation, but that’s one President. What about the future?

As with the War Powers, we have strayed from the Constitution, the Founders’ design, and made a clear situation unclear. We should think twice before straying from the Founders’ design again. Maybe they knew a thing or two.

* The director of the CFPB resigned, after naming a new deputy director. The intent was for the deputy director to become the acting director under the Dodd-Frank statute. But President Trump named OMB chief Mick Mulvaney as acting director under the federal Vacancies Reform Act, another statute. They both showed up to work claiming to be the acting director. The Justice Department and the CFPB’s own General Counsel agreed with Trump, but the deputy director filed a court case to block Trump’s move. She lost the first round when a federal judge refused to block Trump’s move by way of temporary restraining order So Mulvaney is in charge of the CFPB at this writing, but the deputy director indicated in a court filing she plans to seek a preliminary injunction.

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The Fairfax Free Citizen (FxFC), an online newspaper started in January 2013, provides news and commentary of direct interest to residents of Fairfax County and surrounding environs.
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